TN/TD-US income, Canadian income-How to file?

johns_myth · Post by **johns_myth** » Mon Jan 23, 2012 1:56 pm

Hello everyone.

I haven't been able to find information on my specific situation on these boards or anywhere else, so I'd like to post here in case it might apply to others in a similar circumstance.

My wife and I are Canadians who live in the US and have been here for two years under TN/TD status.

I am employed by a US company. My wife is a self-employed consultant for a Canadian company but works remotely.

We are looking for advice on how to file income taxes this year and in the future. I realize that I probably havenâ€™t provided enough information to answer sufficiently, but any advice is greatly appreciated.

Thanks!

nelsona · Post by **nelsona** » Mon Jan 23, 2012 6:17 pm

1. make sure you have correctly filed your departure return when you left, in 2010. No GST or CCTB credits since then
2. Since then, ALL income should have been reported to IRS.
3. Since then, nothing should have been reported to CRA, since neither of you is living or working in canada. Your wife's income is not considered Cdn, since sher is not an employee and does not hav a base in canada (from what you said).
4. It is possible that her client would withhold some Cdn tax (since she is non-resident), but this would be returned to her at tax time.

Any other steps that you have taken in the past that don't agree with the above are probably going or already have gotten you in trouble.

johns_myth · Post by **johns_myth** » Mon Jan 23, 2012 6:45 pm

Thanks for the reply. Unfortunately, I didn't have the foresight to do this correctly and made the following mistakes pertaining to your four points above:

1. We didn't file departure when we left January 2010 and haven't to date.
2. I reported my US income to IRS for 2010 but not wife's.
3. I reported my US income to CRA and so did my wife for 2010.
4. She does not have any tax withheld.

I realize we may have some work to do to rectify our situation and am interested to learn how we can fix it.

nelsona · Post by **nelsona** » Mon Jan 23, 2012 7:19 pm

1. Your 2010 tax return must be corrected. I hope you haven't been collecting GST and CCTB.
2. You have under-reported in US since you arrived. Your wife by the number of days in US is a US tax resident in 2010, even if her income was from canada (which as i said earlier, it is not considered to be). This is a big problem.
3. This is easy to fix, and will probably result in a refund from CRA
4. Good

johns_myth · Post by **johns_myth** » Mon Jan 23, 2012 7:51 pm

Ok, we're getting into the mechanics of how I rectify these issues now, but:

1. What steps might I take to correct my 2010 CRA return? ie. do I have my former accountant in Canada do this for me? (no CCTB has been collected, but GST may have been, I'm not sure).
2. Is it possible to correct my 2010 IRS return to include my wife's income from that year? Again, is this something I take up with the accountant who prepared the return?
3. Can item 1. and 3. be combined and corrected together?

These questions are getting difficult to answer without paying for them, but what I'd like to hear is that they are ultimately solvable.

nelsona · Post by **nelsona** » Mon Jan 23, 2012 8:57 pm

1. Yes
2. Yes
3 .probably

I don't think your accountant did a bad job, you probably misinformed him. But the same acct should be doing both returns.

johns_myth · Post by **johns_myth** » Tue Jan 24, 2012 12:39 am

No, it was definitely my fault, not the accountants.

The problem now is that they are not equipped to file both the US and CAN returns. I had to use a separate accountant in the US to file here. I would feel more comfortable having the returns done by one person (as you suggested) with more US-CAN experience. Would you advise against having a new accountant to take over our files?

nelsona · Post by **nelsona** » Tue Jan 24, 2012 12:21 pm

The problem is the cost. Expect at least $2K to fix this, plus IRS tax interest and penalties.

johns_myth · Post by **johns_myth** » Tue Jan 24, 2012 12:30 pm

Right. It costs what it costs. As long as it can be corrected, we are happy. Your advice is greatly appreciated.

Can you provide a contact where we can proceed offline?

JGCA · Post by **JGCA** » Tue Jan 24, 2012 1:46 pm

You could probably have teh original accountants file Amended returns in Canada and US to correct this, this would keep the cost down considerably. As Nelsona said a file like this could run over $2K to correct just in Accounting fees, let the original accountants refile if you need directions on what they need to do then we can provide this here its not that complicated once they know what to do.

johns_myth · Post by **johns_myth** » Tue Jan 24, 2012 2:25 pm

Yes, the issue is that I do not know what instructions to give the accountants in order to file the amended returns.

It would be great if you would be willing to outline what I need them to do for us.

nelsona · Post by **nelsona** » Tue Jan 24, 2012 2:30 pm

Geez, I thought I already gave pretty detailed steps.

They are tax accoutants that you are paying, right?

johns_myth · Post by **johns_myth** » Tue Jan 24, 2012 2:48 pm

Haha, yes of course. So then simply, we need to do the following:

1. CRA - 2010 return must be corrected to reflect we became non tax residents of Canada January 2010. May result in refund. Will we be correctly filing our 'departure return' in doing so? Or is that another issue?

2.IRS â€“ 2010 return must be amended to include wifeâ€™s income. May be penalties.

johns_myth · Post by **johns_myth** » Tue Jan 24, 2012 6:22 pm

My Canadian accountant's response to my query regarding tax residency is confusing:

"I do not agree that you lost your Canadian residency the day you left Canada. Canadian courts have applied many different factors to determine if someone is resident in Canada. You have to look at all relevant factors and make a judgement as to which factors carry the most weight and determine, on the balance of probabilities, whether or not that person is still resident in Canada.

It is quite possible that Canada Revenue Agency would argue that you and your wife have not given up your Canadian residency because of the temporary nature of your work visa and your wife is not entitled to work in the US."

Frankly, I'm not sure how to proceed.

nelsona · Post by **nelsona** » Tue Jan 24, 2012 7:04 pm

CRA cannot argue this position because of the treaty. I have never heard of court cases involving countries with a treaty have ever been decided in the favour of canada mainatining tax jurisdiction -- quite simply because the treaty provided for remedy outside of courts which is binding on both CRA and (n this case) IRS.

The only "relevant" factor is Treaty arrticle on residency.

Obviously he is not cross-border expert, so I would not be taking his advice.

Besids, this does nothing about the incorrect filing of your wife's invcome in US, which is undeniably US-taxable, since she is physically in the US an overwhelming amount of the time

And here is a problem tha twe haven't mentioned: Once you file a Cdn retunr claiming large foreign tax credits (and you need to provide your 1040), they will at some point decide for you that you are non-resident, perhaps a t a moment that is not conveneient for you.

Best to make this decision on your own, based on a concrete act: your move to US.

Youi are free to taek his advice however. i'm loathe to waste any of my free time arguing with someone that you are paying for, since he would now be benefitting from my free advice and charging you for it.